Big changes to how your credit rating is calculated are taking effect, with lenders able to access more information about your credit history than ever before!
We sat down with Queensland Mortgage Broker Ashley Dickey to discuss the different ways your Credit Rating can be impacted and the recent changes to the system.
So, what do the changes mean for the consumer?
Ashley emphasised that recording customers’ detailed positive and negative credit information on their credit histories was recently made mandatory. The new system is intended to allow lenders to more accurately assess risk, using a fuller picture of potential borrowers’ credit histories. It could be beneficial for people who have the means to take on a loan but may have had a few blemishes in the past, such as one or two late payments.
Under CCR (comprehensive credit reporting), your recent positive behaviour is registered (e.g., if you have made all your required payments in the past two years), which may balance out some previous negative slip-ups such as a missed payment a few years ago.
So, what can someone do to improve their credit score?
“There are many factors that can improve your credit score. I think the main ones that stand out in my experience include”.
- Pay on liabilities on time – home loan repayments, utility bills, credit card and loan repayments.
- Minimise Credit enquires – e.g. The amount of loan application you request
- Don’t apply for payday loans– cash converter, etc. These are a massive RED FLAG when lenders look at your report.
- Don’t default on labilities, and aim to mediate any potential defaults prior to it escalating to that point.
How long do listing’s on a credit file last?
- Name, address etc. → No limit
- Defaults → 5 years from when it goes on your credit report
- Clear out / serious credit infringement → 7 years from when it goes onto your report
- Current loans → 2 years from when your loan ends
- Repayment history information → 2 years from the date the monthly payment was due and payable
- Court judgements → 5 years from the date of judgement
- Part IX Debt agreements → 5 years from the date you entered the debt agreement, or 2 years from the date the debt agreement is terminated or declared void, or when the debt agreement is completed – whichever is the longer
- Bankruptcy → 5 years from the date you became bankrupt or 2 years from the date the bankruptcy ends, whichever is the longer.
How Important is my credit rating?
” Your credit report contains some information about your dealings with credit providers. Credit providers regularly use credit reports to decide whether to give you a loan or a service” So it’s extremely important! Your credit rating can affect anything from a home loan to a mobile phone application.
What affects your credit rating?
- The amount of money you’ve borrowed.
- The number of credit applications you’ve made.
- Whether you pay your liabilities on time.
- Court Judgements
- High amount of credit enquires
If a client is thinking of Investing, what are some of the things that they can do to ensure that their credit rating is in its best form before applying?
When discussing this topic, Ash’s top picks are to check your credit score, there is more than one credit reporting agency. The largest credit reporting agencies are listed below. A copy of your credit report can be obtained for free online by contacting:
- Equifax mycreditfile.com.au;
- illion (formerly) Dunn & Bradstreet illion.com.au;
- Experian experian.com.au.
“Ideally you want to have a higher credit rating when purchasing an investment property. Some lenders may consider lending with a lower score, however, this may incur higher interest rates.”
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